Shareholder value tool

ABSTRACT

The present invention provides and system and related method for automatically examining a company&#39;s financial data and evaluating factors affecting the company&#39;s stock value. Specifically, the present invention evaluates a company&#39;s spread through that company&#39;s debt and equity costs. The present invention further measures returns to investors from company growth, either organic growth or growth through Mergers and acquisitions. The present invention may further evaluate the financial data of other publicly traded companies, such as those in the same industry, and compares the various factors affecting stock value. Proposed actions may then be evaluated according to their predicted changes to accounting values and the resulting changes in shareholder value from these changes.

CROSS-REFERENCE TO RELATED APPLICATIONS

This application claims is a continuation-in-part to pending U.S. patentapplication Ser. No. 10/609,690, entitled “Shareholder Value Tool” filedon Jul. 1, 2003, the subject matter of which is incorporated byreference in full.

STATEMENT REGARDING SPONSORED RESEARCH OR DEVELOPMENT

Not Applicable.

REFERENCE TO SEQUENCE LISTING

Not Applicable.

BACKGROUND OF THE INVENTION Field of the Invention

The present invention relates to computerized system that automaticallyanalyzes an organization's financial data to evaluate various factorsinfluences that organization's stock value. The present invention mayfurther an organization's identify areas of need and may assess actionsaccording to projected improvements in shareholder value.

In turbulent financial conditions, it is often difficult to accuratelyvalue a publicly traded stock asset. Similarly, it is difficult toexamine the stock prices for two companies and determine the causes forthe differences or similarities in the stock prices.

As displayed in Tables 1-4, there are numerous known financialmeasurements that can be used to evaluate a company's financialperformance and health.

TABLE 1 Liquidity Ratios RATIO FORMULA PURPOSE OR USE Current ratio$\frac{{Current}\mspace{14mu}{Assets}}{{Current}\mspace{14mu}{Liabilities}}$Measures short-term debt-paying ability Quick or acid-test ratio$\frac{\begin{matrix}{{Cash},{marketable}} \\{{securities},{and}} \\{{receivables}\mspace{20mu}({net})}\end{matrix}}{{Current}\mspace{14mu}{Liabilities}}$ Measures immediateshort-term liquidity Current cash debt average ratio$\frac{\begin{matrix}{{Net}\mspace{14mu}{cash}\mspace{14mu}{provided}\mspace{14mu}{by}} \\{{operating}\mspace{14mu}{activities}}\end{matrix}}{\begin{matrix}{{average}\mspace{14mu}{current}} \\{liabilities}\end{matrix}}$ Measures a company's ability to pay off its currentliabilities in a given year out of its operations

TABLE 2 Activity Ratios Receivable Turnover$\frac{{Net}\mspace{14mu}{Sales}}{\begin{matrix}{{Average}\mspace{14mu}{trade}} \\{{receivables}\mspace{20mu}({net})}\end{matrix}}$ Measures liquidity of receivables Inventory Turnover$\frac{\text{Cost of goods sold}}{\text{average inventory}}$ Measuresoverall profitability of assets Asset Turnover$\frac{\text{Net Sales}}{\text{Average Total Assets}}$ Measures howefficiently assets are used to generate sales

TABLE 3 Profitability Ratios Profit margin on sales$\frac{\text{Net income}}{\text{Net sales}}$ Measures net incomegenerated by each dollar of sales Rate of return on assets$\frac{\text{Net income}}{\text{Average total assets}}$ Measures overallprofitability of assets Rate of return on common stock equity$\frac{\text{Net income minuspreferred dividends}}{\text{~~Average commonstockholders' equity}}$ Measures profitability of owners' investmentEarnings per share $\frac{\text{Net income minuspreferred dividends}}{\text{weighted shares~~~outstanding}}$ Measures net income earned on each share of commonstock Price earnings ratio$\frac{\text{Market Price of Stock}}{\text{Earnings per share}}$Measures the ratio of the market price per share to earnings per sharePayout ratio $\frac{\text{Cash Dividends}}{\text{Net Income}}$ Measurespercentage of earnings distributed in the form of cash dividends

TABLE 4 Coverage Ratios Debt to Total Assets$\frac{\text{Total Debt}}{\text{Total Assets or Equities}}$ Measures thepercentage of total assets provided by creditors Times Interest Earned$\frac{\text{Income before interest~~~~charges and taxes}}{\text{interest charges}}$ Measures ability tomeet interest payments as they come due Cash debt coverage ratio$\frac{\text{Net cash provided by ~~operating activities}}{\text{Average total~~~liabilities}}$ Measures a company's ability to repay its totalliabilities in a given year out of its operations Book Value per Share$\frac{\begin{matrix}{{Common}\mspace{14mu}{{Stockholders}'}} \\{Equity}\end{matrix}}{{Outstanding}\mspace{14mu}{Shares}}$ Measures the amounteach share would receive if the company were liquidated

Of these measures, two metrics commonly used to measure a company'sperformance are Return on Equity (as defined in Equation 1) and Returnon Assets (as defined in Equation 2). However, as described below,results from these metrics are frequently misleading.

$\begin{matrix}{{{Return}\mspace{14mu}{on}\mspace{14mu}{Equity}} = \frac{{Net}\mspace{14mu}{Income}}{{Shareholders}\mspace{14mu}{Equity}}} & ( {{Eq}.\mspace{14mu} 1} ) \\{{{Return}\mspace{14mu}{On}\mspace{14mu}{Assets}} = \frac{{Net}\mspace{14mu}{Income}}{Assets}} & ( {{Eq}.\mspace{14mu} 2} )\end{matrix}$However, it is often difficult to make meaningful comparisons ofcompanies when using the above-described metrics in Tables 1-4, such asReturns on Assets and Equity, because of limitations in GenerallyAccepted Accounting Principles (GAAP) and international differences inaccounting practices. For instance, Net Income, as used in Equations 1and 2, is highly dependent on the accounting quality of earningmeasurements in that Net Income tries to capture non-operating incomeand expense and is, therefore, subject to companies attempting to manageearnings reports. There is also a wide disparity in the calculation ofNet Income from one country to another. Furthermore, Net Income may bemisleading because companies that have been highly acquisitive tend tohave higher non-cash charges (e.g., amortization) that artificiallyresult in lower new income. In the same way, the Assets and Equityvalues used in Equations 1 and 2 may vary because of internationaldifferences that create a wide disparity in how assets are recorded fromcountry to country. Also, the Assets and Equity quantities may bemisleading because of accounting anomalies, such as an acquisition inwhich a seller may sell fully depreciated assets [thereby having noaccounting value to the seller] but a buyer may record assets equal tofair value at the time of purchase [thereby being a positive value inthe buyer's accounting]. Similar problems also exist with the otherknown measures of business performance because of GAAP limitations andinternational differences in accounting practices.

To assist the public in valuing a company and thus valuing thatcompany's stock, publicly traded companies may be legally required toprovide various accounting and financial disclosures. For instance, mostpublicly traded companies in the United States are required to submitfinancial disclosure data to the United States Securities and ExchangeCommittee, which publishes this information online to the public.Specifically, the SEC requires all publicly traded companies (exceptcertain foreign companies and companies with less than $10 million inassets and fewer than 500 shareholders) to file registration statements,periodic reports, and other forms electronically through the ElectronicData Gathering, Analysis and Retrieval (EDGAR) database. Anyone canaccess and download this information for free. For more information onEDGAR, please refer to http://www.sec.gov/edgar.shtml.

However, since statutes and regulations require a large number offilings from a large number of entities, the EDGAR database has grown toenormous proportions. As a result of the size of the EDGAR database andas a consequence of inconsistencies with respect to how differententities report similar matters, it is inherently difficult to analyzethe EDGAR data in a meaningful way. Basic text searches can beperformed, but meaningful data reduction is substantially hampered byinconsistencies and by the variety of reporting forms used to reportsimilar information.

Financial data on many publicly traded companies is also available for afee through commercial services such as Standard and Poor's Compustat®database at www.Compustat.com or Thomson Financial's Global Access®database at www.Primark.com. Many companies also publicly disclosevarious financial data to potential investors. However, as with theinformation on the EDGAR website, this information is difficult tocomprehend without processing that requires a high level of skill and istypically time consuming, expensive, and labor intensive.

Much like investors, a company often faces difficulty and expense inanalyzing its own stock performance. From the standpoint of businesses,it is also helpful to analyze stock performance to determine variousvalue drivers (e.g., net sales, gross sales, profitability, marketshare, research and development expenditures, labor force size, cashholdings, fixed costs. debt load, manufacturing capacity, assetsallocation, etc.) affecting stock values. By analyzing the performanceof its stock and comparing this performance to the stock performance ofcompeting businesses, a company may form a course of action that fostersvalue drivers that benefit stock value while minimizing the effect ofvalue drivers deflating stock values.

SUMMARY OF THE INVENTION

In response to these and other needs, the present invention provides andsystem and related method for automatically examining a company'sfinancial data and evaluating factors affecting the company's stockvalue. Specifically, the present invention evaluates a company's spreadthrough that company's debt and equity costs. The present inventionfurther measures returns to investors from company growth, eitherorganic growth or growth through mergers and acquisitions.

In a preferred embodiment, the present invention further evaluates thefinancial data of other publicly traded companies, such as those in thesame industry, and compares the various factors affecting stock value.

In another embodiment, the present invention includes a system fordetermining the return to investors. In one embodiment, the system is asoftware-based application that collects or receives financial data anduses this information to calculate the return to inventors through thecompany's spread and growth. In a particular implementation, the systemis connected to a distributed network such as the Internet toautomatically receive data and to use this data in calculating thereturn to investors.

At times, an organization's shareholder return is known and variousunknown accounting values may be deduced using various calculations usedto calculate shareholder value.

In other embodiments, the present invention provides a system werepublicly-available financial data is collected and combined with privatedata at a local data storage device. The locally stored data may then bemanipulated as needed to perform desired calculation and measurements.

In particular, the locally stored data may be manipulated to reflectbusiness changes and to predict the impact to shareholder return fromthese changes. These changes may be abstract changes to accountingvalues, such as changes in various costs, tax, or price values. In thisway, the present invention may be used to evaluate the relativeimportance of these accounting values in the calculation of shareholderreturn for a particular organization, and similarly, the relativeability of the various accounting values to change shareholder return.For example, the present invention may calculate the sensitivity ofshareholder return to various changes to the accounting value (e.g., theaccounting value adjust by plus or minus a predefined constant value andthe result to shareholder return from these changes). The sensitivity ofthe shareholder return to the various accounting values providesimportant insight into an organization's performance and needs. Where anorganization's shareholder return is particularly sensitive to changesin an accounting value, this suggests that the organization isunderperforming in areas related to that accounting value. In a similarway, the sensitivity analysis may be repeated for several organizations,and the performance of the organizations may compared according to therelative sensitivities of these organization's shareholder return tochanges in a shared accounting value.

Alternatively, the changes to one or more accounting values may be usedto model the results from business changes. For example, the relativesensitivity of shareholder return to changes in the accounting valuesimpacted by the proposed business action may be used to predict theactual impact of the business action. Similarly, the shareholder returnmay be calculated with and without the predicted changes to theaccounting values caused by the proposed business action. The businessaction may then be evaluated according to its predicted changes tooverall shareholder return.

BRIEF DESCRIPTION OF THE DRAWINGS

A more complete understanding of the present invention and advantagesthereof may be acquired by referring to the following description takenin conjunction with the accompanying drawings in which like referencenumbers indicate like features, and wherein:

FIG. 1 illustrates a shareholder value calculation method in accordancewith embodiments of the present invention;

FIGS. 2-3 and 13 depict various aspects of a company's financialstatement, as used in the shareholder value calculation method of FIG.1;

FIGS. 4-7 depict substeps in the shareholder value calculation method ofFIG. 1 in accordance with embodiments of the present invention;

FIGS. 8-9 and 11-12 schematically depicts a shareholder value tool forimplementing the steps of the shareholder value calculation method ofFIG. 1 in accordance with embodiments of the present invention;

FIG. 10 depicts an exemplary output graph summarizing the findings ofthe shareholder value calculation method of FIG. 1 in accordance withembodiments of the present invention; and

FIG. 14 depicts the steps in a shareholder value lever analysis methodthat in accordance with embodiments of the present invention.

DETAILED DESCRIPTION OF THE PREFERRED EMBODIMENTS

As depicted in FIG. 1., the present invention provides a shareholdervalue calculation method 100 for automatically evaluating variousfactors contributing to the value of a company's publicly traded stock.Shareholder value creation determined in step 120 is computed using atotal return to shareholders (TRS) calculated in step 110, which isdriven by both spread and growth, as determined in steps 200 and 300,respectively. The steps in the shareholder value calculation method 100are described in greater detail below.

The various calculations in the shareholder value calculation method 100generally look to information in a company's financial statement.Financial statements generally consist of a balance sheet, incomestatement, cash flow statement, and notes to the financial statements.Core Financial Statements contents include: Balance Sheet; IncomeStatement; Cash Flow Statement; and Notes to the Financial Statements.

A Balance Sheet is a snapshot at one point in time in the life of abusiness. The balance sheet represents the financial state 10 of thecompany at that point in time, as graphically depicted in FIG. 2. Theleft side of the financial state 10 represents the company's variousassets, including:

-   -   Current Assets such as Cash, Short-term investments (debt and        equity securities), Accounts receivable, Inventory, and Prepaid        accounts;    -   Long-term Investments including debt and equity securities, and        Investments in non-consolidated subsidiaries;    -   Property, Plant & Equipment such as Land, Machinery & Equipment,        Furniture & Fixtures, and Accumulated depreciation; and    -   Intangibles assets such as Patents, Goodwill, Franchises, and        Trademarks.        Conversely, the rights side of the financial state 10 represents        the company's various liabilities, including    -   Current Liabilities such as Accounts payable, Deferred revenues,        Current-portion of long-term debt, and Income taxes payable;    -   Long-term Liabilities including Pension liabilities, Bonds        payable, Notes payable, Deferred tax liability; and    -   Shareholders' Equity including Common stock (at par), Additional        paid-in capital, Preferred stock, and Retained earnings.

Continuing with the financial statement, it generally includes an incomestatement (graphically depicted as income statement 20 in FIG. 3) thatshows the income generated and the costs incurred over a period of time,such as a financial year. As depicted in FIG. 3, aspects of the incomestatement 20 include:

-   -   Cash and credit sales;    -   the Cost of Goods Sold including costs for raw materials, Direct        labor, Factory overhead (including production depreciation),and        Freight-in;    -   Selling, General, and Administrative costs such as        Non-production salaries (marketing, sales, accounting, etc.),        and Amortization;    -   Miscellaneous costs such as freight-out, Advertising/marketing        expenses, and Non-production depreciation;    -   Non-operating expenses including Income/Expense and Gain/loss        associated with sale of assets other than inventory Gains/losses        associated with non-operating activities;    -   Interest Expenses such as Interest on debt payable and Interest        on capital lease obligations; and    -   Income Tax Expense including deferred tax expense and Income tax        expense.

Another aspect of the company's financial statement is a CashflowStatement (not illustrated) that is simply a statement of all the cashreceived or paid during the year. The Cashflow Statement includesvarious data including:

-   -   Changes in Cash and Cash Equivalents for the Period describing        Cash Flows from Operating Activities, Investing Activities, and        Financing Activities adjusted for Cash Outflows;    -   Net cash provided by operating activities such as Net income,        Depreciation and amortization, Deferred income taxes, Equity        income or loss, net of dividends, Foreign currency adjustments,        Gains on sales of assets, and Net change in operating assets and        liabilities;    -   Net cash used in investing activities such as Acquisitions and        investments, purchases of investments and other assets, proceeds        from disposals of investments and other assets, Purchases of        property, plant and equipment, and Proceeds from disposals of        property, plant and equipment;    -   Financing Activities such as Issuances of debt, Payments of        debt, Issuances of stock, Purchases of stock for treasury, and        Dividends;    -   The Effect of Exchange Rate Changes on Cash and Cash        Equivalents; and    -   Cash and Cash Equivalents Balance at end of year, specifically,        Net increase (decrease) during the year, and Balance at        beginning of the year.

Another integral part of the company's financial statement is a sectionof Notes to the Accounts where all the small print is found. The Notesto the Accounts contain valuable information on the following:

-   -   Accounting conventions used;    -   Fair value of assets (marketable securities, fixed assets,        equity investments, intangible assets);    -   Details of liabilities (type and term of debt);    -   Segment data (geographic, product, divisional);    -   Details of shares and new issuance;    -   Details of pension liabilities;    -   Details of Employee Stock Option Plans (ESOP's); and    -   Off-balance sheet liabilities (leases, derivatives).

Returning now to FIG. 1, the shareholder value calculation method 100includes the steps of calculating spread in step 200 and the calculationof growth in step 300. The calculation of spread in step 200 addressesvalue through the business operations of the company whereas thecalculation of growth in step 300 addresses changes in the value of thecompany through changes in its size and structure.

ROIC

As depicted in FIG. 1, the determination of spread in step 200 includesthe calculation of a return on invested capital (ROIC) in step 210 and aweighted average cost of capital (WACC) in step 220. The ROIC valuecaptures the return on the investment provided by the company'sinvestors (debt and equity investors). ROIC is defined in Eq. 3:

$\begin{matrix}{{ROIC} = \frac{NOPLAT}{{Invested}\mspace{14mu}{Capital}}} & ( {{Eq}.\mspace{14mu} 3} )\end{matrix}$

In Equation 3, Invested Capital represents capital provided by debt andequity investors. Invested capital is money invested to derive acompany's operating profits. Continuing with Equation 3, net operatingprofit less adjusted taxes (NOPLAT) is the total operating profits for abusiness with adjustments made for taxes. Thus, NOPLAT measures thetotal cash available for distribution to financial capital contributors.

The company's invested capital is needed to determine ROIC in step 210using Equation 3. In theory, debt and equity investors are the onlygroup that demands a return from the company's operations. The debtinvestor invests capital as reflected by the amount of a note. Theamount owed to debt investors is reflected on a company's balance sheetas the current maturities of long-term debt, long-term debt, andcapitalized leases. The debt investor has an expected return of intereston the outstanding obligation of the company. An equity investor mayprovide an initial investment that appears on a company's balance sheetas common stock, additional paid-in-capital, or as preferred stock.Conversely, an equity investor may provide earnings from an initialinvestment to be reinvested in operations, and these reinvested earningsappear on a company's balance sheet as retained earnings. In exchangefor the initial investment and the reinvested earnings, the equityinvestor expects to receive capital appreciation plus dividends.

Invested capital may be determined using Equation 4A or 4B:Invested Capital≈Working Capital+Fixed Assets   (Eq. 4A),orInvested Capital≈Debt+Equity   (Eq. 4B)where working capital equals current assets minus current liabilities.

The calculation of invested capital preferably includes a considerationof “quasi-debt” and “quasi-equity.” The term quasi-debt is used hereinto refer to money that a company has borrowed to fund retirement-relatedliabilities, and the quasi-debt effects investors' interests because ofthe negative future returns associated with the cost of the debt. Thequasi-debt is generally included in “other long-term liabilities” oranother similar entry in a company's balance sheet. The termquasi-equity, as used herein, refers to deferred income taxes. Thequasi-equity should be included in the calculation of invested capitalbecause it may produce a return to shareholders in the form of capital.

To calculate invested capital using either Equations 4A or 4B, thecompany's balance sheet may be organized to see how much capital isinvested in the company by equity and debt investors and how much of thecapital has been invested in operating activities and othernon-operating activities. Invested capital may thus be calculated in twoways—either identifying where the capital is invested (essentiallyWorking Capital+Fixed Assets) or identifying the sources for the capital(essentially Equity+Debt+other).

More specifically, the identifying of where the capital is investedbegins by determining net operating working capital. The determining ofnet operating working capital generally includes calculating thedifference between operating current assets and operating currentliabilities. The operating working capital is added to (1) net property,plant and equipment and (2) other assets net of other liabilities tocalculate operating invested capital. Then, the operating investedcapital may be summed together with goodwill and cumulative goodwillwritten off (which is typically not available from publicly availabledata) to calculate operating invested capital after goodwill. Theoperating invested capital after goodwill is then added to excessmarketable securities and non-operating assets to calculate totalinvestor funds.

Alternatively, invested capital may be calculated by identifying thesources for the capital. Specifically, adjusted equity is calculated byadding equity, cumulative written off goodwill, and deferred incometaxes (i.e., quasi assets). The adjusted equity is then summed with debtand retirement related liabilities (i.e., quasi debt) to calculate totalinvestor funds. It should be appreciated that the amount of investedcapital determined through either identifying of where the capital isinvested identifying the sources for the capital should be the same.

Referring back to Equation 3, the next task in determining the ROIC instep 210 is to calculate a company's NOPLAT. As described above, NOPLATrepresents the residual return earned by the debt and equity holdersafter other stakeholders are paid in the operation of the business.Generally, NOPLAT may be calculated using Equation 5,NOPLAT=EBITA−Cash Taxes   (EQ. 5)where EBITA (Earnings Before Interest, Taxes, and Amortization) istypically calculated by looking to the company's revenue, adjusted forthe cost of goods/services (such as wages and material costs associatedwith producing the good/service and any depression) and other expensesincluding selling, general, and administrative costs (such as otherwages, commissions, and fees).

Continuing with Equation 5, the next task in calculating NOPLAT is tocalculate the cash taxes paid on the EBITA. Generally, the cash taxesare calculated using GAAP income taxes adjusted for reverse deferredtaxes. The reverse deferred taxes represents tax liabilities that arerecognized for accounting purposes, but not for tax purposes. The cashtaxes may be further adjusted for any lost interest expense deduction todetermine the cash taxes on the EBITA.

After determining EBITA and Cash Taxes on the EBITA, NOPLAT may thencalculated by subtracting the cash taxes on EBITA from EBITA.

As with invented capital, NOPLAT may be determined in two ways, eitheradjusting from revenues (“top down”) or adding back to net income(“bottom up”). Either method may be used and both may be done to ensurethat the calculations of NOPLAT are performed correctly. Thus, in thetop down method,

$\begin{matrix}{{NOPLAT} = {{{Reported}\mspace{14mu}{EBITA}} - {{Taxes}\mspace{14mu}{on}\mspace{14mu}{EBITA}} + {{Increase}\mspace{14mu}{in}\mspace{14mu}{Deferred}\mspace{14mu}{Taxes}}}} & ( {{Eq}.\mspace{14mu} 6} )\end{matrix}$where the reported EBITA is the total revenues adjusted for the Cost ofgoods sold; selling, general and administration expenses; depreciationexpense; and other operating expenses. In the top down method, acompany's Net Income is summed with any increases in deferred taxes,goodwill amortization, any extraordinary accounting items (also calledspecial items after taxes or after tax items), and minority interestincome to calculate an Adjusted Net Income for that company. Then, theAdjusted Net Income is summed with any interest expenses after tax todetermine the company's Total Income Available to Investors. NOPLAT maythen be calculated by subtracting Interest income after-tax andNon-operating income after-tax from the Total Income Available toInvestors.

After calculating NOPLAT and Invested Capital, the ROIC may becalculated as the ratio of NOPLAT to Invested Capital, as provided abovein Equation 3. Thus, using the methods described above for calculatingNOPLAT, a company's ROIC for a time period of interest may be calculatedusing the invested capital at the end of that period or by using theaverage invested capital during that period.

It should be appreciated that ROIC can be disaggregated into smallercomponents that provide more insight into the performance of the assetunder review. This disaggregation process can continue to levels withmore and more actionable components. For instance, by substitutingEquation 6 into Equation 3, ROIC may be redefined as suggested Equation7.

$\begin{matrix}{{ROIC} = {\frac{EBITA}{{Invested}\mspace{14mu}{Capital}}( {1 - {{cash}\mspace{14mu}{tax}\mspace{14mu}{rate}}} )}} & ( {{Eq}.\mspace{14mu} 7} )\end{matrix}$ROIC may be further decomposed through simple manipulation of Equation 7using the algebraic equality contained in Equation 8:.

$\begin{matrix}{\frac{EBITA}{{Invested}\mspace{14mu}{Capital}} = {\frac{EBITA}{Revenue} \times \frac{Revenue}{{Invested}\mspace{14mu}{Capital}}}} & ( {{Eq}.\mspace{14mu} 8} )\end{matrix}$Equation 8 may be substituted into Equation 7 to produce Equation 7′:

$\begin{matrix}{{ROIC} = {( {\frac{EBITA}{Revenue} \times \frac{Revenue}{{Invested}\mspace{14mu}{Capital}}} ) \times ( {1 - {{cash}\mspace{14mu}{tax}\mspace{14mu}{rate}}} )}} & ( {{Eq}.\mspace{14mu} 7^{\prime}} )\end{matrix}$In Equation 7′, the ratio of EBITA to Revenue represents a company'soperating margin and the ratio of Revenue to Invested Capital representsthat company's capital utilization.

As depicted in FIG. 4, the component values used to calculate ROIC maybe visually displayed in a tree format to gain insight concerning acompany's value levers. Specifically, FIG. 4 depicts various inputs 410that may be used to calculate operating margin 420 and capitalutilization 430. The operating margin 420 and capital utilization 430are then summed to determine pretax ROIC 440, which is adjusted by a taxrate on EBITA 450 to calculate actual ROIC 460.

WACC

Returning now to FIG. 1, the calculation of the company's Spread in step200 continues with the calculation of the Weighted Average Cost ofCapital (WACC) in step 220. The WACC of an asset represents theopportunity cost of investors for putting their money into the asset. Itis the sum of the cost of debt holders and the cost of equity holders,each weighted by their share of the overall value of the asset. Thus,WACC may be calculated using Equation 9:

$\begin{matrix}{{WACC} = {{{weighted}\mspace{14mu}{cost}\mspace{14mu}{of}\mspace{14mu}{debt}} + {{weighted}\mspace{14mu}{cost}\mspace{14mu}{of}\mspace{14mu}{equity}}}} & ( {{Eq}.\mspace{14mu} 9} )\end{matrix}$

The weighted cost of debt (WCD) in Equation 9 may be calculated usingEquation 10:WCD=K _(d)*(1−t)*D/(D+E)   (Eq. 10)where K_(d) is the cost of debt,

-   -   t is the tax rate on the debt,    -   D is the market value of the debt, and    -   E is the market value of the equity.

In Equation 10, the product of K_(d) and (1−t) represents the after taxcost for the debt, and the ratio of the market value of the debt to thecost of the total debt and equity [D/(D+E)] represents the weightingfactor for the debt. In the same way, the weighted cost for equity (WCE)may be calculated using Equation 11:WCE=K _(e) *E/(D+E)   (Eq. 11)where K_(e) is the cost of equity, and the ratio of the market value ofthe equity to the market of the total debt and equity [E/(D+E)] is theweighting factor for the equity.

In most cases, the cost of capital for debt (K_(d)) is simply the yieldto maturity of the bond at current market prices, adjusted for taxes,and K_(d) is by definition the marginal rate for a specific time period.The actual marginal rates for each time period may be hard to determine,so the cost of debt K_(d) may be estimated by the company's yield tomaturity on long-term debt, such as the cost for 5 to 10 year debt. Thistype of information is readily available for most publicly tradedcompanies. Similarly, the tax rate t, representing current or expectedmarginal tax rate for the debt holder, may be estimated using thecompany's current or expected marginal tax rate, which may be easilyestimated or calculated using publicly available information.

In the absence of publicly traded debt, the cost of debt K_(d) can bedetermined by using the company's credit ratings. For instance, the costof debt can be estimated by approximating a credit rating based onfinancial ratios such as debt/capital and times interest earned.

The other portion of WACC, the cost of equity K_(e), may be calculatedusing the capital asset pricing model (CAPM). The capital asset pricingmodel postulates that the investors set their opportunity cost ofcapital equal to the returns on risk-free securities, plus a premium forthe systematic risk of the individual stock. In particular, the cost ofequity K_(e) may be calculated as provided in Equation 12:K _(e) =r _(f)+(r _(m) −r _(f))*β  (Eq. 12)where K_(e) is the opportunity cost of capital for investors in thisasset;

-   -   r_(f) is the risk-free rate of return available to all        investors;    -   r_(m) is the historic market risk premium required to compensate        investors for the additional risks associated with equity        ownership; and    -   β is the factor by which a given stock's returns differ from the        returns of the market portfolio.        The CAPM says that there is a linear relationship between the        cost of equity and the riskiness of the assets, as represented        by the β value. The β value is the standardized measure for        co-variance of stock returns with aggregate market return. A        stock having a high β value tends to have exaggerated responses        to moves by the market, while a low β stock tends to have muted        responses.

The risk-free rate (r_(f)) represents the yield-to-maturity on long-termgovernment bonds. For each year's cash flow, r_(f) is the return onriskless assets of corresponding duration. Thus, r_(f) may be difficultto determine since each year's cash flow has a different discount rate.The risk-free rate yield may be estimated using the maturity onlong-term government bonds (in currency of cash flows) for all years ofinterest. If using the maturity on long-term government bonds during theyears of interest causes a material impact due to an undesirably steepyield curve or an unusual cash flow pattern, separate discount rates foreach year may be used in the alternative.

Continuing with Equation 12, the market risk premium (r_(m)) may bedetermined by the forward-looking expected market premium, as tailoredto local markets. However, r_(m) is an area of intense debate betweenacademics, bankers and consultants. Estimates for r_(m) may vary greatlydepending, for instance, on the mean used, the time period examined, andwhether r_(m) is evaluated backwards or forwards. For simplicity, r_(m)may be estimating as 5% for all developed markets. This estimate forr_(m) corresponds with historical average returns.

Continuing with Equation 12, the β value for a publicly traded company,a private company, or a business group is a forwarding looking β valuereflecting company-specific volatility. Thus, predicted β values aregenerally preferred over historical β values, but β calculations fromdifferent sources can vary significantly. In particular, a β value for apublicly traded company is available through various resources. Forinstance, Barra®, Inc. of Berkeley, Calif. publishes a listing of βvalues for companies in various industries, and this listing may be usedto define a β value for the company as described above. The β valuespublished by BARRA are calculated using the past price behavior of thestock and market over the past five years and are calculated relative tothe local portion of the Financial Time Actuaries World Index. For moreinformation, please see www.Barra.com. Other organizations publishing βvalues for publicly traded companies include Bloomberg, Standard &Poor's, and Valueline.

The β value for the publicly traded company beta may be located throughone of the commercial listings and used unless the β value issubstantively different from peer group values. In particular, if the βvalue is substantially different from a β value for the relevantindustry, then the industry β value should be used in Equation 12 unlessa clear rationale exist for the difference in the company's β value. Inselecting related companies in the relevant industry for comparison,each company included in a diagnostic should adhere to a logicalrational and set of criteria.

With a business unit or private company, the β values may be taken fromrelated publicly traded organizations with similar capital structures.More specifically, when valuing a division or a non-publicly tradedcompany, the β value for Business Unit/Private Company may be determinedusing a β value calculating method 500 provided in FIG. 5. In the βvalue calculating method 500, the first step 510 is to identify listedcompanies that operate in the same field and to determine the β valuefor these related businesses. An initial estimate of a β value for theBusiness Unit/Private Company is calculated by averaging or otherwisecombining the unlevered β values of the related companies. Next, in step520, the financing structure of the Business Unit/Private Company isevaluated using known techniques to estimate the effect of the financingstructure on the β value, as described in greater detail below.Consequently, a relevered β value for the Business Unit/Private Companyis formed in step 530 by adding in any impact of the financingstructure.

As described above, the β value calculating method 500 includesadjusting the β value in step 520 for the capital structure of thecompany of interest, since β values tend to increase as companies becomemore highly leveraged. To reflect this relationship between leverage andβ value, Equation 13 may be used to modify reference β value(s)according to the company's debt-to-equity ratio.

$\begin{matrix}{\beta_{U} = \frac{\beta_{L}}{\lbrack {1 + {( {1 - T_{c}} )*\frac{D}{E}}} \rbrack}} & ( {{Eq}.\mspace{14mu} 13} )\end{matrix}$

Where: β_(U)=beta without leverage;

-   -   β_(L)=beta with leverage;    -   T_(c)=the corporate marginal tax rate; and    -   D/E=the debt-to-equity ratio based on market values.

In evaluating capital structures, it may be helpful to think in terms ofchoosing a “target” capital structure based on market weights ofinvested capital. The use of a target capital structure may beadvantageous because a current capital structure may not reflect along-term capital structure that is expected to persist. In this case,market weights of debt and equity may be used to reflect the trueeconomic claims of investors. A Target Capital Structure Developmentprocess 600 for developing a Target Capital Structure is provided inFIG. 6 and includes estimating a current capital structure in step 610,reviewing comparable businesses in step 620; and reviewing managementapproach in step 630. Estimating a current capital structure in step 610may include identifying financing associated with business of interest,converting these financing values to market values, and then calculatinga market-based capital structure. Likewise, the reviewing of comparablebusinesses in step 620 includes the identifying of financing values forcomparable businesses, converting these financing values to marketvalues, and then calculating a market-based capital structure. Thereviewing of the management approach in step 630 includes understandingthe financial structure targets for the business of interest.

EXAMPLE

In this example, a company has the following financial numbers:

-   -   β_(L)=0.79    -   T_(R)=40%    -   E=$2,781 Mill.    -   D=$747 Mill.    -   R_(F)=4.93%    -   R_(M)-R_(F)=5%    -   K_(D)=7.2%        For the company in the analysis, the β value is preferably        unlevered using Equation 13, as described above. Thus, the        company has

$\begin{matrix}{\beta_{U} = {\beta_{L}/\lbrack {1 + {( {1 - T_{R}} )*{D/E}}} \rbrack}} \\{= {{.79}/\lbrack {1 + {( {1 - {40\%}} )*( {747/2781} )}} \rbrack}} \\{= {{.68}.}}\end{matrix}$

As described above, the unlevered beta values β_(U) should generallyfall close to the industry average (within a range of ±0.25).Unexplained outliers should be adjusted to the industry average toaccount for measurement errors in calculating betas. For instance, ifthe industry for the company in this example has an average β_(U) of0.35, the difference between the two β_(U) values exceeds the 0.25.Accordingly, the cost of equity should be recalculated using theindustry average β_(U) value (β_(U(Industry))). Returning again to theapplication of Equation 12 in this example and using the industryaverage β_(U) value (β_(U(Industry))),

$\begin{matrix}{\beta_{U} = {\beta_{U{({Industry})}}/\lbrack {1 + {( {1 - T_{R}} )*{D/E}}} \rbrack}} \\{= {{.35}/\lbrack {1 + {( {1 - {40\%}} )*( {747/2781} )}} \rbrack}} \\{= {.41}}\end{matrix}$Once the β value for the company is relevered, a revised WACC may becalculated as follows. First the Weighted Cost of Debt is determinedusing Equation 10.

$\begin{matrix}{{{Weighted}\mspace{14mu}{Cost}\mspace{14mu}{of}\mspace{14mu}{Debt}} = {K_{D}*{( {1 - T_{R}} )\lbrack {D/( {D + E} )} \rbrack}}} \\{= {7\%*( {1 - {40\%}} )( {747/3528} )}} \\{= {{.9}\%}}\end{matrix}$Likewise, the Weighted Cost of Equity may be determined using Equations11 and 12.

$\begin{matrix}{{WCE} = {\lbrack {R_{F} + {( {R_{M} - R_{F}} )*\beta}} \rbrack*\lbrack {E/( {D + E} )} \rbrack}} \\{= {\lbrack {{4.93\%} + {( {5\%} )\mspace{14mu}({.41})}} \rbrack*( {2781/3528} )}} \\{= {7.0\%\;*78.8\%}} \\{= {5.5\%}}\end{matrix}$Thus, the WACC for the company in this example is the sum of theWeighted Cost of Debt and the Weighted Cost of equity, or 6.4%.Equipment Leases

Operating leases may require special treatment in the calculation ofboth ROIC and WACC in steps 210 and 220. For instance, a company mayhave the option of leasing or purchasing equipment. In substance,operating leases represent a type of financing similar to long-termdebt. In application, leases are treated very differently from debt inthe financial statements. For instance, a company may assume long-termdebt to pay for purchased equipment. Using the shareholder valuecalculation method 100 described above, companies that lease would havemuch higher ROIC. Accordingly, a preferred embodiment of the presentinvention makes an adjustment to prevent manipulation of the ROIC valuesthrough accounting decisions. Specifically, operating leases may beadjusted on the financial statements to treat the leases as debt andfixed assets by decreasing COGS (Cost of Goods Sold) in the incomestatement by the amount paid on the lease and increasing the PP&E(Property, Plant, and Equipment) and Debt values in the balance sheet bythe next year's lease payment divided by the cost of debt (K_(d)).

Retirement Liabilities

Retirement liabilities may also require special treatment in thecalculation of both ROIC and WACC in steps 210 and 200. RetirementLiabilities represent two types of costs, Financial Accounting Standard(FAS) 87 liabilities for unfunded pension liabilities and FAS 106liabilities for unfunded post-retirement benefits other than pensions.According to standard accounting conventions, unfunded retirementliabilities are treated very differently from debt in the financialstatement even though the unfunded retirement liabilities represent atype of financing similar to long-term debt. As a result, companies withunfounded retirement liabilities would have understated NOPLAT andInvested Capital, thereby altering the final return on investment forshareholders as calculated through shareholder value calculation method100. In the income statement, the retirement liabilities would causeincreases or decreases in Liability as reflected in operating expense.Similarly, retirement liabilities included on a balance sheet as along-term liabilities reduce Invested Capital on a “where to” and a“where from” basis. Thus, a preferred implementation of the presentinvention adjusts for retirement liabilities in financial statements bytreating the retirement liabilities as debt. Specifically, the SG&A(Selling, General, & Administrative Expenses) in the Income Statement isreduced by the product of the Liability Amount and the Cost of Debt. Forthe calculation of NOPLAT in step 210, an implied interest expense isestimated on the liability for the year, and a portion of operatingexpenses equal to this amount is reclassified as interest expense.Similarly, the Balance Sheet may be modified by reducing the otherlong-term liabilities by the Liability Amount and conversely increasingthe debt by the Liability Amount.

Growth

Returning now to FIG. 1, the shareholder value calculation method 100further includes the calculation of the change in the value of thecompany caused by growth in step 300, both organic growth measured instep 310 and growth through mergers and acquisitions (M&A) calculated instep 320. Turning now to FIG. 7, the calculation of organic growth instep 310 generally uses current/future value analysis in step 311 andmeasurement of implied growth in perpetuity in step 312. The calculationof M&A growth in step 320 uses a strategic control map to examine thegrowth in step 321 and distinguishes acquirer and non-acquirerstrategies in step 322.

The calculation of organic growth is step 310 uses an analysis of thecurrent and future value of the company to breakdown the market value ofa firm into a current operations value and a future value ofinvestments. In particular, the present invention looks to the value ofthe company and identifies the value of current operations. Thedifference between the current value of the company and the value ofcurrent operations represents the expected future growth value, asspecified in Equation 14.

$\begin{matrix}{{{Expected}\mspace{14mu}({Growth})} = {{{Enterprise}\mspace{14mu}{Value}} - {{Value}\mspace{14mu}{of}\mspace{14mu}{Current}\mspace{14mu}{Operations}}}} & ( {{Eq}.\; 14} )\end{matrix}$In Equation 14, the Enterprise Value represents the value of theenterprise, which is typically reflected as the market value of debt andequity (the market value of debt plus the market capitalization ofcommon and preferred shares). The value of current operations reflectsthe value of the current operations in perpetuity. Typically, the valueof current operations is calculated by showing current NOPLAT inperpetuity, as represented by the ratio of NOPLAT to WACC. Thus, thefuture value determined in Equation 14 represents the markets'expectation regarding the ability to sustain current NOPLAT inperpetuity.

Returning to FIG. 7, the determining of organic growth in step 310continues with a measurement of implied growth in perpetuity in step312. By analyzing long-term expectations about growth implied in acompany's stock price, companies with potential growth challenges may beidentified. The implied growth represents investors' expectations offuture cash flows in perpetuity. The measurement of implied growth inperpetuity begins with a determination of the enterprise value of thefirm (market debt plus equity), which reflects the market's currentvalue assessment of the company. The enterprise value of the firm is areadily available figure that is available through the share price.Next, the measurement of implied growth in perpetuity continues with aforecast of free cash flow based on consensus analyst opinions. Inparticular, free cash flow may be estimated for a future period, such asthe next five years, based on analysts' forecasts. The measurement ofimplied growth in perpetuity continues by discounting theabove-described free cash flow forecasts to determine how much of thecurrent enterprise value is reflected in the markets estimate of freecash flow for the forecasted period, such as the next five years. Thepresent value of the free cash flow estimate for the prediction periodmay then be subtracted from the enterprise value to calculate thecontinuing value of the business. The continuing value is thenundiscounted to determine its present value. For instance, thecontinuing value of the business may be divided by [1/(1+WACC)]^(n),where n represents the number of periods of prediction.

Equation 15 represents the relationship between the continuing value(CV) and growth rate g:

$\begin{matrix}{{{Continuing}\mspace{14mu}{Value}} = \frac{{NOPLAT}( {1 - \frac{g}{ROIC}} )}{{WACC}\text{-}g}} & ( {{Eq}.\; 15} )\end{matrix}$Using simple algebra, Equation 15 may be modified to solve for g in thebelow described process:

$\begin{matrix}\begin{matrix}{{CV} = {\lbrack {{NOPLAT}( {1 - {g/{ROIC}}} )} \rbrack/( {{WACC}\text{-}g} )}} \\{ {= {{NOPLAT}\lbrack {1 - {g( {1/{ROIC}} )}} \rbrack}} \rbrack/( {{WACC}\text{-}g} )} \\{= {\lbrack {{{NOPLAT}(1)} - {({NOPLAT})(g)( {1/{ROIC}} )}} \rbrack/( {{WACC}\text{-}g} )}} \\{{{CV}( {{WACC}\text{-}g} )} = {{NOPLAT} - {({NOPLAT})(g)( {1/{ROIC}} )}}} \\{{{{CV}({WACC})} - {{CV}(g)}} = {{NOPLAT} - {({NOPLAT})(g)( {1/{ROIC}} )}}} \\{{- {{CV}(g)}} = {{NOPLAT} - {({NOPLAT})(g)( {1/{ROIC}} )} - {{CV}({WACC})}}} \\{{{- {{CV}(g)}} + {{{NOPLAT}(g)}( {1/{ROIC}} )}} = {{NOPLAT} - {{CV}({WACC})}}} \\{{- {g( {{CV} - {{NOPLAT}( {1/{ROIC}} )}} )}} = {{NOPLAT} - {{CV}({WACC})}}} \\{{- {g( {{CV} - {{NOPLAT}/{ROIC}}} )}} = {{NOPLAT} - {{CV}({WACC})}}} \\ {{- g} = {\lbrack {{NOPLAT} - {{CV}({WACC})}} \rbrack/\lbrack {{CV} - {{NOPLAT}/{ROIC}}} )}} \rbrack\end{matrix} & ( {{Eq}.\; 15} )\end{matrix}$Thus, g may be defined as indicated in following Equation 15′:

$\begin{matrix}{g = {- \frac{{NOPLAT} - ( {{CV}*{WACC}} )}{{CV} - \frac{NOPLAT}{ROIC}}}} & ( {{Eq}.\; 15^{\prime}} )\end{matrix}$The calculation of a value for G using Equation 15′ may be furthersimplified by making several assumption such as:

$\begin{matrix}{NOPLAT} & = & {{the}\mspace{14mu}{value}\mspace{14mu}{for}\mspace{14mu}{NOPLAT}\mspace{14mu}{in}\mspace{14mu}{year}\mspace{14mu}{after}\mspace{14mu}{the}\mspace{14mu}{cash}} \\\; & \; & {{flow}\mspace{14mu}{predictions}\mspace{14mu}( {{typically}\mspace{14mu}{year}\mspace{14mu} 6\mspace{14mu}{after}\mspace{14mu} a} } \\\; & \; & { {{five}\mspace{14mu}{year}\mspace{14mu}{prediction}} );} \\{CV} & = & {{undiscounted}\mspace{14mu}{continuing}\mspace{14mu}{value}\mspace{14mu}{calculated}} \\\; & \; & {previously} \\{WACC} & = & {{{WACC}\mspace{14mu}{as}\mspace{14mu}{of}\mspace{14mu}{year}\mspace{14mu} 0\mspace{14mu}{of}\mspace{14mu}{the}\mspace{14mu}{evaluation}};{and}} \\{ROIC} & = & {{{WACC}\mspace{14mu}{plus}\mspace{14mu} a\mspace{14mu}{premium}},{{such}\mspace{14mu}{as}\mspace{14mu} 1{\%.}}}\end{matrix}$Please note that the ROIC premium above WACC is largely dependent on theindustry. Commodity-based industries will typically experience industryreturns equal to WACC in perpetuity, while industries with high barriersto entry (such as pharmaceuticals) may have a premium above WACC of 2%).

In the absence of free cash flow estimates, g can be solved usingEarnings per Share (EPS) estimates, as embodied in Equation 16:g=[NI−(CV) (COE)]/[CV−(NI/ROE)]  (Eq. 16)Where

-   NI=Net Income after the period of cash flow predictions;-   CV=undiscounted continuing value calculated previously;-   COE=K_(e) as of year 0 from the WACC calculation; and-   ROE=COE plus a premium, such as 1%, as described above.

A negative value for Current Operations may warrant further study ofhistorical trends in NOPLAT or may suggest exceptional changes indeferred taxes. In the same way, Growth cannot be greater than WACC inthe Continuing Value calculation of step 312, as described in greaterdetail below.

Without discerning between M&A growth and organic growth, revenue growthfor some companies may seem exceptional because M&A activity may greatlyaffect the ROIC values for a company. Thus, revenue associated withacquired or divested units should be incorporated in an analysis oforganic revenue growth. Typical adjustments may include subtractingacquisition revenues in the year purchased and all subsequent years;adding back divested revenue in the year of the divestiture and allsubsequent years; or calculating Compound Annual Growth Rate (discussedbelow) using final revenue divided by the sum of companies revenue atthe beginning of the period. Possible additional adjustments includediscounting acquisition revenues by 5-10% to account for revenuedis-synergies outside of management control, pro-rating revenueadjustments in the first year based upon the timing of the transaction;or checking company news archives to ensure a complete transaction listis obtained. Generally, adjustments should not be made for carve-outs orstock purchases in subsidiaries where revenues consolidated in thecompany's financial reports do not change.

Returning to step 320, the growth of a company's value attributedthrough mergers and acquisitions may use a Strategic Control Map in step321. A strategic control map graphically illustrates shows how M&Aactivity has affected a relevant industry's overall structure, as wellas the relative position of members of that industry. The StrategicControl Map generally compares the performance of companies (e.g., asembodied by market-to-book values ratios or the market values) to thesize or book values of the companies.

The industry may then be divided into categories, such asNiche/Specialist businesses that are small but have high performance,Leaders that are large and perform will, Targets that are small and donot perform well, and Lumbering Giants that are large but do not performwell. In general, the Niche/Specialist businesses have high returns fromsmall amounts of invested capital; compete in niche/value addedsegments; typically are not acquisition targets by virtue of marketvalue; face challenges to grow given their niche orientation; and maybecome attractive targets for acquisition if their market value declinesbecause of their unique capabilities. In contrast, the marker leadersusually have high returns from large amount of invested capital; competein broad segments; typically offer significant acquisition opportunitiesby virtue of market multiples; utilize scale effectively; but may facechallenges to identify value-creating growth opportunities given theirlarge size. Target companies have low returns from small amount ofinvested capital; typically have domestic competitors in globalindustries; are vulnerable to competitors that can generate higherreturns on the same asset base; and face challenges to improveoperations or be taken out. Lumbering giants having large size but poorperformance have low returns from large amount of invested capital; havean inability to leverage scale; despite low market value, are typicallynot popular targets for acquisitions because of their large sizes helpsto deter purchasers; and face the challenge of correcting for underperforming operations to generate greater returns on invested capital.

Continuing with step 320, to determine growth from M&A, the company isassessed using acquirer and non-Acquirer strategies in step 322. Asdescribed above, unadjusted calculations incorrectly show high growthrates for acquisitive companies but adjusting for M&A activity reveals aclearer picture of organic growth. Return to Shareholder performance ofacquisitive and non-acquisitive competitors may be compared using theabove-described techniques to highlight the relative importance of M&A.For instance, active acquirers' Total Return to Shareholders may becompared to Competitors in related industries.

Absolute growth for a company of interest is provided in Equation 17:

$\begin{matrix}{{{Absolute}\mspace{14mu}{Growth}} = {( \frac{{{Ending}\mspace{14mu}{Stock}\mspace{14mu}{Price}} + {{Accumulated}\mspace{14mu}{Dividends}}}{{Beginning}\mspace{14mu}{Stock}\mspace{14mu}{Price}} ) - 1}} & ( {{Eq}.\; 17} )\end{matrix}$The absolute growth rate may then be modified, as shown in Equation 18,to calculate the Compound Annual Growth Rate (CAGR)

$\begin{matrix}{{CAGR} = {( \frac{{{Ending}\mspace{14mu}{Stock}\mspace{14mu}{Price}} + {{Accumulated}\mspace{14mu}{Dividends}}}{{Beginning}\mspace{14mu}{Stock}\mspace{14mu}{Price}} )^{\frac{1}{n}} - 1}} & ( {{Eq}.\; 18} )\end{matrix}$where n is the number of periods of interest. For instance, if a stockappreciates from $50 to $70 and pays $3 in dividend in a 3 year period(i.e., n=3), thenCAGR=[(70+3)/50]^(1/3)−1=13.4%

In situations in which there have been no material changes to the stock,the CAGR may represent company's growth. However, various events maymodify the value of a stock without materially changing the TRS. Forinstance, a stock split generally represents an increase in the numberof shares and a reduction in the price per share with no associatedchange in value. In the same way, a portion of a company may be spun offto form a new business with its own stock. The value of the originalcompany's stock will decrease, but this decrease will be offset by thevalue of stocks issued by the spin-off company.

Return to Shareholders

The spread determined in step 200 is the difference between the ROIC andthe WACC. The growth determined in step 300 is the CAGR, adjusted asnecessary. The total return to shareholders (TRS) calculated in step 110is then the sum of the spread and the growth.

It should be appreciated that the calculation of Return to Shareholdersmay be sensitive to the start date. In general, TRS should be calculatedover a full business cycle while avoiding start dates that includeextraordinary company events such as the resignation/hiring ofmanagement officials; earnings releases; regulatory changes; or majorchanges in corporate structure. In the same way, start dates affected byglobal economic events should be avoided since global economic eventsmay falsely inflate/deflate industry returns. Preferably, TRS iscalculated over several time periods to ensure the results are similarregardless of the starting point and timeframe. Thus, outliers andanomalies should be identified and avoided. If necessary, TRS may becalculated by comparing the company to those which have more variedtiering of stock value. Alternatively, a logical breakdown of thetiering may be used to identify relevant competitors or the tiering maybe based on a median composite index.

Upon calculation of TRS in step 110, the company may be evaluated todetermine potential value drivers. The value levers may be developedthrough an iterative, hypothesis driven process. Each industry is uniqueand has its own set of value levers. Nonetheless, some common valuelever themes cross industries. A value driver for an industry oftendemonstrates a strong correlation with TRS. Value levers help to explainwhy some companies create value while others destroy value.

System 800

The steps of the shareholder value calculation method 100 may beimplemented through a shareholder value system 800. As depicted in FIG.8, the shareholder value system 800 may be a software-driven applicationincluding modules that automatically perform each of the steps of theshareholder value calculation method 100. Specifically, the shareholdervalue system 800 may have modules 801, 802, 803, and 804 forcalculating, respectively, the ROIC, WACC, Organic Growth, and Growththrough M&A. For instance, in one implementation, the shareholder valuetool 800 is a spreadsheet application (such as an application written inVisualBasic® for Excel®, both marketed by Microsoft Corp. of Redman,Wash.) that receives various financial data and user inputs, and usesthese inputs to calculate the Spread and Growth numbers as needed tocalculate TRS.

In another embodiment, the Shareholder Value Tool 800 may be connectedto a user 910 and a financial data repository 920 via a distributednetwork, such as the Internet. The financial data repository 920, asdescribed above, may be the EDGAR website administered by the UnitedStates Security and Exchange Committee, commercial services such asStandard and Poor's Compustat database at www.Compustat.com or ThomsonFinancial's Global Access database at www.Primark.com, or other publiclyaccessible source of financial data. In this embodiment, the ShareholderValue Tool 800 may be an application present on an Internet server andis accessible to various users and applications via the distributednetwork. Conversely, the Shareholder Value Tool 800 may accept variousinputs from the user 910 and the financial data repository 920. Forinstance, the Shareholder Value Tool 800 may include softwareapplication such as data mining applications in Extended Meta Language(XML), not depicted, that automatically search for and return relevantinformation from the financial data repository 920.

The Shareholder value tool may further visually display results, asdepicted Shareholder Return Graph 1000 in FIG. 10. In particular, theShareholder Return Graph 1000 compares growth [as represented by theCompound Annual Growth Rate (CAGR)] and the spread [as measured by thedifference of the return to investors and the weighted cost of capital].Logically, companies having above-average growth and spread have higherrates of return. Thus, the Shareholder Return Graph 1000 identifies suchcompanies as top industry performers.

Referring now to FIG. 11, a shareholder value network 1100 having ashareholder value tool 1110, similar to the configuration in describedabove in FIG. 9, is now described. The shareholder value 1110 may be adedicated application, coded using known techniques or programminglanguage (such as VisualBasic®), to implement the methods and processesdescribed herein. The shareholder value tool 1110 may be functionallyconnected to a local financial data repository 1120, such as a knowndata storage device or data storage network, for storing financial datacollected over a network 1130 from public financial data repositories1150, as described above. The shareholder value tool 1110 may furtherconnect with a private financial data repository 1140 that containsinformation not generally available to the general public. For example,an organization may implement the shareholder value network 1100 toassess its own performance and to predict future shareholder value.

In operation, the pre-collection of relevant financial data in the localfinancial data repository 1120 offers significant performanceadvantages. In exchange for the computation and time cost associatedwith the collection and local storage of the financial data, theshareholder value network 1100 may operate much more rapidly using thefinancial data contained in the local financial data repository 1120since the data collection is a relatively time-consuming process. Thisadvantage is particularly present where the shareholder value tool isused several times on the same financial data. For example, theshareholder value tool 1110 may be used to analyze several differentcompeting organizations in the same industry. Similarly, as described ingreater detail below, the financial data in the local financial datarepository 1120 may be adjusted to reflect various changes, actual orproposed, and the shareholder value tool 1110 may be used to analyze thechanges in shareholder value resulting from these changes.

Turning now to FIG. 12, a shareholder value tool 1200 implemented inembodiments of the present invention is now described. As with theembodiment of the shareholder value tool 800 described above in FIG. 8,the shareholder value system 1200 may be a software-driven applicationincluding modules that automatically perform each of the steps of theshareholder value calculation method 100. Specifically, the shareholdervalue system 1200 may have modules 1210, 1220, 1230, and 1240 forcalculating, respectively, the ROIC, WACC, Organic Growth, and Growththrough M&A, corresponding to previously described modules 801, 802,803, and 804. Complementing these modules 1210, 1220, 1230, and 1240 isa financial data store 1270 corresponding to the local financial datarepository 1120.

Continuing with FIG. 12, the shareholder value tool 1200 furthercomprises a lever strength analysis module 1250. The lever strengthanalysis module 1250 analyzes the various accounting constituents of theshareholder value, as determined through the shareholder valuecalculation method 100. For example, chart 1300 in FIG. 13 expands onthe Income Statement 20 of FIG. 3 and depicts various accounting valuesused to determine return to shareholders according to the shareholdervalue calculation method 100. Typical levers include wages of varioustypes of employees, fixed or variable costs, worker productivity,projected sales numbers and prices, etc. Various other levers aredescribed above in connection with the calculation of shareholderreturn, according to shareholder return calculation method 100. Itshould be appreciated that virtually any known financial measure may beused as a lever to analyze an organization's return to shareholders andthe results of changes from the lever.

The lever strength analysis module 1250 works, as described in greaterdetail below in FIG. 14 and the related text, by analyzing the effectsof changing one or more of the various accounting measures. The leverstrength analysis module 1250 may calculate the effects to shareholderreturn from changes in the levers. This may help identify areas in whichan organization can change to improve returns to shareholder and areaswhere changes would have little impact on shareholder return. Forexample, an organization may already have low labor costs, and changescausing reduction in labor costs may have little benefit to shareholderreturn. In the same way, the lever strength analysis module 1250 maypredict the shareholder return changes from the multiple financialchanges caused by a complex business decision, such as the hiring ofadditional employees that increases overall productivity whileincreasing labor costs. Changes in the lever values may be programmed bya user or may by automatically determined by the shareholder value tool1200 by other known applications for predicting the effects of businesschanges. For example, various known return on investments (ROI) toolspredict economic number changes to an organization resulting fromvarious technology expenditures, and these types of know application maybe used to predict changes to the levers. Alternatively, the changes tothe levers caused by various business activities may be studied andaccessed, as described in co-owned pending U.S. application Ser. No.10/609,690 filed on Mar. 18, 2004 the subject matter of which isincorporated by reference in full.

The results of the lever strength analysis module 1250 may be stored inthe Financial Data store 1270, and a lever strength graphical displaymodule 1260 may then graphically display the results. The resultinggraphical display may be in any form or format. The graphical displaymay also compare the relative lever strength between different relatedcompanies, similar to the Shareholder Return Graph 1000 in FIG. 10.Instead of displaying the differences in shareholder value returnbetween different companies, the resulting display would present thedifferences in lever performance between the different companies. Asdescribed in greater detail below, the present invention thereby allowsa comparison of performance in specific areas as measured by theireffects on shareholder return. For example, the research and developmentexpenditures (R&D) of different companies in an industry may be comparedso that companies over or under investing may be identified, accordingto the relative ability of the research and development expenditures tochange the shareholder return of each of the companies. Companies thatare very sensitive to increased research and development likely underinvest whereas companies whose shareholder return is insensitive toincrease research and development likely already invest sufficiently inR&D or otherwise suffer from other limitations that limit the benefitsof additional R&D.

Turning now to FIG. 14, a shareholder value lever analysis method 1400may be used to analyze an organization's return to shareholder and theeffects of changing various levers used in calculating that shareholderreturn. The value of this functionality arises because shareholderreturn is often generally known, but the constituting factors (thelevers) impacting the shareholder return and the relative importance ofthese factors is often ambiguous at best. Accordingly, other embodimentsof the present invention provide an automated tool and method foranalyzing the causes for shareholder return and for assessing changesaccording to their probable impact on shareholder return. Often, it isparticularly difficult to evaluate business actions because the actionshave complex, conflicting results that are difficult to assess as awhole. For example, in the situation of acquiring new equipment, theequipment typically has upfront purchase costs as well as continuedmaintenance costs that must be counter-balanced against the proposedbenefits, such as increased worker productivity. An equipment upgrademay further improve the quality of goods and services, thereby increasesales volumes and prices. While traditional policy analysis toolsaddress attempt to provide a numerical analysis addressing these typesof the economic factors, the traditional analysis tools were wildlyinaccurate in predicting the end result of particular importance—theoverall benefit to an organization and its shareholders.

Referring back now to FIG. 14, the shareholder value lever analysismethod 1400 begins with defining and acquiring financial data ofinterest, respectively, in steps 1410 and 1420. As previously describedabove in the discussion of the shareholder value method 100, thedefinition of the financial data of interest in step 1410 generallyincludes defining an organization of interest and determining relevantfinancial data as available on public data records. Where privatefinancial information is available or needed, this private informationdesignated for use as well. The information defined in step 1410generally includes accounting data as needed to perform the varioussteps and calculations involved in the shareholder value analysis method100 or other similar shareholder value calculations. For many publiclytrade organizations, the shareholder return is already available in theform of stock value changes and dividends and bond payments. Theselected materials are then obtained in step 1420 using known methodsand technology and may be stored in a data storage device, such as thefinancial data store 1270.

Continuing with FIG. 14, the acquired financial data is then interpretedin step 1430 using the shareholder return analysis method 100 or otherknown financial data process for addressing the factors impactingshareholder value. As suggested above, the shareholder return mayalready be known and the shareholder value analysis methods may be usedin reverse to estimate missing or unavailable financial data. Inoptional step 1440, a similar process (mirroring steps 1410-1430) may beused for competitors so that a company's shareholder return andconstituting factors may be compared to its competitors. Step 1440generally comprises manually selecting organizations or otherwisemanually selecting a relevant industry and automatically analyzing thecompanies included in the selected industry.

Continuing with FIG. 14, the strength of various levers may be analyzedthrough various known sensitivity analysis techniques that firstslightly change one or more financial data inputs and then determine theresults of the changes. For example, various financial data inputs maybe individually manipulated by predefined adjustment amounts andadjustment ranges to determine the results of these changes toshareholder return. For example, it is typically found, for example,that relatively mature companies are rather insensitive to changes inadvertising expenditures since the companies are already relatively wellknown. As discussed above, a lever may be any type of known, definablecause impacting shareholder value, such as the various values definedabove in connection with the shareholder return analysis method 100. Instep 1450, the strength of a lever may likewise be determined forcompetitors, and relative lever strengths for the competitors may becompared. Overall, this analysis allows a user to determine the relativeability of any single factor or combination of factors to improveshareholder return.

Once the relative lever strengths are determined in step 1450 (i.e.,determine the ability of various accounting changes to improveshareholder performance), these results may be used in step 1460 toassess proposed changes or to propose changes to achieved desiredchanges in shareholder value. To propose changes, a strong lever isidentified, and changes leading to changes in this lever are forwarded.For example, the above reference co-owned U.S. patent application Ser.No. 10/609,690 provides a link to case studies that present changes tolevers resulting from various business changes.

In a similar way, proposed business actions may be assessed according totheir predicted changes to one or more levers. As described above, thereare various known methods and tools to predict the accounting effectsfrom a business action, but these tools do not predict changes toshareholder return from these changes. In step 1460, the presentinvention may use the results from these tools to assess proposedchanges according to their predicted effect on shareholder value.Typically, the financial data collected in step 1420 is adjustedaccording to the predicted changes from adjustments from the variouslevers, and the shareholder value is recalculated in step 1430.Alternatively, the levers changed from a business action may beidentified by the known applications, and the strength of these leversmay be evaluated using the results determined from lever strengthanalysis in step 1450.

In this way, it can be seen the shareholder value analysis method 100may be applied as suggested in the shareholder value lever analysismethod 1400 to analyze an organization's areas of needs (i.e., areascorresponding to strong levers that may potentially produce improvementsin shareholder value). Similarly, the shareholder value lever analysismethod 1400 may be used to evaluate proposed actions according to theeffects of these actions on the various levers and the relativestrengths of the these levers.

CONCLUSION

The foregoing description of the preferred embodiments of the inventionhas been presented for the purposes of illustration and description. Itis not intended to be exhaustive or to limit the invention to theprecise form disclosed. Many modifications and variations are possiblein light of the above teaching. For instance, the method of the presentinvention may be modified as needed to incorporate new communicationnetworks and protocols as they are developed. It is intended that thescope of the invention be limited not by this detailed description, butrather by the claims appended hereto. The above specification, examplesand data provide a complete description of the manufacture and use ofthe composition of the invention. Since many embodiments of theinvention can be made without departing from the spirit and scope of theinvention, the invention resides in the claims hereinafter appended.

1. A computer-based system for automated performance evaluation of anorganization, the system comprising: a computerized database storingfinancial information on the organization; a processor for performinginstructions for automated performance evaluation of the organization inlight of financial information accessed from said computerized database;and communication means connecting said computerized database and saidprocessor, wherein said instructions performed by said processorinclude: an investment return evaluation module, said investment returnevaluation module receiving the accessed financial information andcalculating a return on invested capital; an organization β valuedetermination module, said organization β value determination moduledetermining a β value of the organization by (1) identifying comparablebusinesses that operate in the same field as the organization, (2)determining the β values of the comparable businesses, (3) averaging theβ values of the comparable businesses to determine an unlevered β value,(4) estimating an effect of the financing structure of the organizationusing the unlevered β value, and (5) determining a relevered β value forthe organization by adding in the effect of the financing structure; aninvestment costs evaluation module, said investment costs evaluationmodule receiving the accessed financial information and calculating aweighted average cost of capital using the β value of the organization;a growth estimation module, said growth estimation module receiving theaccessed financial information and calculating a total growth comprisingan organic growth and a mergers and acquisitions growth; an economicperformance calculation module, said economic performance calculationmodule calculating a total return to shareholders using the calculatedreturn on invested capital, the calculated weighted average cost ofcapital, and the total growth; and a lever strength analysis module,said lever strength analysis module identifying at least one financialchange to the organization that would improve the total return toshareholders, and identifying at least one business action by theorganization that would cause the at least one identified financialchange.
 2. The computer-based system for automated performanceevaluation of an organization of claim 1, wherein the investment returnevaluation module calculates the return on invested capital bycalculating an operating margin, by calculating a capital utilization,and by multiplying the operating margin by the capital utilization. 3.The computer-based system for automated performance evaluation of anorganization of claim 2, wherein the investment return evaluation modulecalculates the return on invested capital (ROIC) using the followingequation:${{ROIC} = \frac{NOPLAT}{{Invested}\mspace{14mu}{Capital}}},{where}$NOPLAT (net operating profit less adjusted taxes to financial capitalcontributors) is total operating profits with adjustments for taxes, andInvested Capital represents investor-provided capital.
 4. Thecomputer-based system for automated performance evaluation of anorganization of claim 3, wherein the investment return evaluation modulecalculates NOPLAT using the following equation:NOPLAT=EBITA−Cash Taxes where EBITA (Earnings Before Interest, Taxes,and Amortization) is calculated by determining revenue and adjusting forcosts.
 5. The computer-based system for automated performance evaluationof an organization of claim 1, wherein Weighted Average Cost of Capital(WACC) calculated by the investment costs evaluation module comprises aweighted sum of costs of debt holders and costs of equity holders. 6.The computer-based system for automated performance evaluation of anorganization of claim 5, wherein the investment costs evaluation modulecalculates Weighted Average Cost of Capital (WACC) using the followingequation:WACC=K _(d)*(1−t)*D/(D+E)+K _(e) *E/(D+E) where K_(d) is a cost of debt,t is a tax rate on the debt, D is a market value of the debt, E is amarket value of the equity, K_(e) is a cost of equity, and E/(D+E), aratio of a value of equity to a value of the total debt and equity is aweighting factor for the cost of equity.
 7. The computer-based systemfor automated performance evaluation of an organization of claim 6,wherein the investment costs evaluation module calculates the cost ofequity, K_(e), using the following equation:K _(e) =r _(f)+(r _(m) −r _(f))*β, where: r_(f) is a risk-free rate ofreturn available to investors; r_(m) is a historic market risk premium;and β is a factor that returns differ from the returns of a marketportfolio.
 8. The computer-based system for automated performanceevaluation of an organization of claim 7, wherein the investment costsevaluation module calculates the β value using the following equation:$\beta_{U} = {\frac{\beta_{L}}{\lbrack {1 + {( {1 - T_{c}} )*\frac{D}{E}}} \rbrack}\text{)}}$where: β_(u)=beta without leverage; β_(L)=beta with leverage; T_(c)=thecorporate marginal tax rate; and D/E=the debt-to-equity ratio based onmarket values.
 9. The computer-based system for automated performanceevaluation of an organization of claim 1, wherein the investment costsevaluation module adjusts the calculated Weighted Average Cost ofCapital (WACC) to reflect an equipment lease.
 10. The computer-basedsystem for automated performance evaluation of an organization of claim1, wherein the investment costs evaluation module adjusts the calculatedWeighted Average Cost of Capital (WACC) to reflect a retirementliability.
 11. The computer-based system for automated performanceevaluation of an organization of claim 1 further comprising a competitormodel for calculating a competitor's total return to shareholders. 12.The computer-based system for automated performance evaluation of anorganization of claim 11 further comprising a graphing model, saidgraphing model preparing a visual comparison of said organizations'return to shareholders and said competitor's total return toshareholders.
 13. The computer-based system for automated performanceevaluation of an organization of claim 1 further comprising a leverstrength analysis module, said lever strength analysis modulecalculating a change in shareholder return from modifying one or moreentries in said financial information, whereby: said equity returnevaluation module receives the modified financial information andcalculates a second return on invested capital; said investment costsmodule receives the modified financial information and calculates asecond weighted average cost of capital; said growth estimation modulereceives the modified financial information and calculates a secondtotal growth comprising a second organic growth and a second mergers andacquisitions growth; said economic performance calculation modulecalculates a second total return to shareholders using the secondcalculated return on invested capital, the second calculated weightedaverage cost of capital, and second calculated total growth; and saidlever strength analysis module comparing said first and said secondtotal returns to shareholders.
 14. The computer-based system forautomated performance evaluation of an organization of claim 1, whereinthe level strength analysis module predicts a financial changeassociated with the at least one business action.
 15. The computer-basedsystem for automated performance evaluation of an organization of claim13, whereby said lever strength analysis module calculates changes inshareholder return from modifying multiple entries in said financialinformation; and said lever strength analysis module identifying one ormore of said modified entries causing a desired change in shareholderreturn.
 16. The computer-based system for automated performanceevaluation of an organization of claim 15, wherein the lever strengthanalysis module further proposes actions to achieve said identifiedmodified entries.
 17. The computer-based system for automatedperformance evaluation of an organization of claim 1 further comprisinga competitor lever strength analysis module that calculates a change ina competitor's shareholder return from a financial change similar to theat least one identified financial change.
 18. The computer-based systemfor automated performance evaluation of an organization of claim 1further comprising a lever strength graphical display module thatgraphically displays said changes in the organization's and competitor'sshareholders returns.
 19. A computer-implemented method for automatedperformance evaluation of an organization, the method comprising thesteps of: a computer accessing remotely stored financial information;said computer storing said financial information; said computercalculating a return on invested capital using said stored financialinformation said computer determining a β value of the organization by(1) identifying comparable businesses that operate in the same field asthe organization, (2) determining the β values of the comparablebusinesses, (3) averaging the β values of the comparable businesses todetermine an unlevered β value, (4) estimating an effect of thefinancing structure of the organization using the unlevered β value, and(5) determining a relevered β value for the organization by adding inthe effect of the financing structure; said computer calculating aweighted average cost of capital (WACC) using said stored financialinformation and said β value of the organization; said computercalculating a total growth using said stored financial information, saidtotal growth comprising an organic growth and a mergers and acquisitionsgrowth; said computer calculating a total return to shareholders usingthe calculated return on invested capital, the calculated weightedaverage cost of capital, and the total growth; said computer identifyingat least one financial change to the organization that would improve thetotal return to shareholders; and said computer identifying at least onebusiness action by the organization that would cause the at least oneidentified financial change.
 20. The computer-implemented method forautomated performance evaluation of an organization of claim 19, whereinthe step of calculating a return on invested capital comprisescalculating an operating margin, calculating a capital utilization, andmultiplying the operating margin and the capital utilization.
 21. Thecomputer-implemented method for automated performance evaluation of anorganization of claim 20, wherein the step of calculating the return oninvested capital (ROIC) comprises using the following equation:${{ROIC} = \frac{NOPLAT}{{Invested}\mspace{14mu}{Capital}}},\;{where}$NOPLAT (net operating profit less adjusted taxes to financial capitalcontributors) is total operating profits with adjustments for taxes, andInvested Capital represents investor-provided capital.
 22. Thecomputer-implemented method for automated performance evaluation of anorganization of claim 21, wherein the step of calculating the return oninvested capital (ROIC) further comprises determining NOPLAT using thefollowing equation:NOPLAT=EBITA−Cash Taxes where EBITA (Earnings Before Interest, Taxes,and Amortization) is calculated by determining revenue and adjusting forcosts.
 23. The computer-implemented method for automated performanceevaluation of an organization of claim 19, wherein the step ofcalculating the Weighted Average Cost of Capital (WACC) comprisesdetermining a weighted sum of costs of debt holders and costs of equityholders.
 24. The computer-implemented method for automated performanceevaluation of an organization of claim 23, wherein the step ofcalculating the Weighted Average Cost of Capital (WACC) comprises usingthe following equation:WACC=K _(d)*(1−t)*D/(D+E)+K _(e) *E/(D+E) where K_(d) is a cost of debt,t is a tax rate on the debt, D is a market value of the debt, E is amarket value of the equity, K_(e) is a cost of equity, and E/(D+E), aratio of a value of equity to a value of the total debt and equity is aweighting factor for the cost of equity.
 25. The computer-implementedmethod for automated performance evaluation of an organization of claim24, wherein the step of calculating the Weighted Average Cost of Capital(WACC) further comprises calculating the cost of equity, K_(e), usingthe following equation:K _(e) =r _(f)+(r _(m) −r _(f))*β, where: r_(f) is a risk-free rate ofreturn available to investors; r_(m) is a historic market risk premium;and β is a factor that returns differ from the returns of a marketportfolio.
 26. The computer-implemented method for automated performanceevaluation of an organization of claim 25, wherein the step ofcalculating the Weighted Average Cost of Capital (WACC) furthercomprises calculating the β value using the following equation:$\beta_{U} = {\frac{\beta_{L}}{\lbrack {1 + {( {1 - T_{c}} )*\frac{D}{E}}} \rbrack}\text{)}}$where: β_(u)=beta without leverage; β_(L)=beta with leverage; T_(c)=thecorporate marginal tax rate; and D/E=the debt-to-equity ratio based onmarket values.
 27. The computer-implemented method for automatedperformance evaluation of an organization of claim 19, wherein the stepof calculating the Weighted Average Cost of Capital (WACC) furthercomprises adjusting to reflect an equipment lease.
 28. Thecomputer-implemented method for automated performance evaluation of anorganization of claim 19, wherein the step of calculating the WeightedAverage Cost of Capital (WACC) further comprises adjusting to reflect aretirement liability.
 29. The computer-implemented method for automatedperformance evaluation of an organization of claim 19 further comprisingthe step of calculating a competitor's total return to shareholders. 30.The computer-implemented method for automated performance evaluation ofan organization of claim 29 further comprising a step of preparing avisual comparison of said organizations' return to shareholders and saidcompetitor's total return to shareholders.
 31. The computer-implementedmethod for automated performance evaluation of an organization of claim19 further comprising the steps of: said computer creating a set ofmodified financial information; said computer calculating a secondreturn on invested capital using said modified financial information;said computer calculating a second weighted average cost of capital(WACC) using said modified financial information; said computercalculating a second total growth using said modified financialinformation, said second total growth comprising a second organic growthand a second mergers and acquisitions (M&A) growth; and said computercalculating a second total return to shareholders using the secondcalculated return on invested capital, the second calculated weightedaverage cost of capital, and second first total growth; said computercomparing said first and said second total returns to shareholders. 32.The computer-implemented method for automated performance evaluation ofan organization of claim 19, wherein the lever strength analysis modulepredicts a financial change associated with the at least one businessaction.
 33. The computer-implemented method for automated performanceevaluation of an organization of claim 19, whereby said computercalculates changes in shareholder return from modifying multiple entriesin said financial information; and said computer identifies one or moreof said modified entries causing a desired change in shareholder return.34. The computer-implemented method for automated performance evaluationof an organization of claim 33, wherein the computer further proposesactions to achieve said identified modified entries.
 35. Thecomputer-implemented method for automated performance evaluation of anorganization of claim 19 further comprising a step of calculating achange in a competitor's shareholder return from a financial changesimilar to the at least one identified financial change.
 36. Thecomputer-implemented method for automated performance evaluation of anorganization of claim 35 further comprising graphically displaying saidchanges in the organization's and competitor's shareholders returns. 37.A computer-readable storage medium containing a set of instructions forevaluating performance of an organization, the set of instructions whenexecuted by a computer implement a process comprising: accessingfinancial information on the organization; storing said accessedfinancial information; calculating a return on invested capital usingsaid stored financial information; determining a β value of theorganization by (1) identifying comparable businesses that operate inthe same field as the organization, (2) determining the β values of thecomparable businesses, (3) averaging the β values of the comparablebusinesses to determine an unlevered β value, (4) estimating an effectof the financing structure of the organization using the unlevered βvalue, and (5) determining a relevered β value for the organization byadding in the effect of the financing structure; calculating a weightedaverage cost of capital using said stored financial information and saidβ value of the organization; calculating total growth using said storedfinancial information, said total growth comprising organic growth andmergers and acquisitions growth; calculating a total return toshareholders using the return on invested capital, the weighted averagecost of capital, and the total growth; identifying at least onefinancial change to the organization that would improve the total returnto shareholders; and identifying at least one business action by theorganization that would cause the at least one identified financialchange.
 38. The computer-readable storage medium of claim 37 wherein theprocess implemented by the set of instructions further comprises:calculating a competitor's total return to shareholders; and preparing avisual comparison of said organizations' return to shareholders and saidcompetitor's total return to shareholders.